Sears 2006 Annual Report Download - page 70

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SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
Accounting for Pension and Postretirement Benefits
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans.” SFAS No. 158 became effective for the Company as of February 3, 2007, and
requires recognition of an asset or liability in the statement of financial position reflecting the funded status of
pension and other postretirement benefit plans, with current-year changes in the funded status recognized in
shareholders’ equity. SFAS No. 158 did not change the existing criteria for measurement of periodic benefit
costs, plan assets or benefit obligations. The following table summarizes the incremental effects of the initial
adoption of SFAS No. 158 on the consolidated balance sheet at February 3, 2007.
In millions
Before
Application
of SFAS 158
SFAS 158
Adjustments
After
Application
of SFAS 158
Other assets ...................................... $ 449 $ (50) $ 399
Total assets ....................................... 30,116 (50) 30,066
Other current liabilities ............................. 3,922 43 3,965
Pension and postretirement benefits ................... 1,621 27 1,648
Minority interest and other liabilities ................... 2,998 (195) 2,803
Total liabilities .................................... 17,477 (125) 17,352
Accumulated other comprehensive income (loss) ......... (7) 75 68
Total shareholder’s equity ........................... 12,639 75 12,714
In fiscal 2005, the Company changed the actuarial valuation measurement date for certain pension and
postretirement plans from the last Wednesday in January to December 31st to facilitate the year-end reporting
process. The effect of this change did not have a material impact on the consolidated financial statements.
NOTE 4—ACQUISITION OF MINORITY INTEREST IN SEARS CANADA
During fiscal 2006, the Company increased its majority interest in Sears Canada from 54% to 70% by
acquiring 17.8 million common shares of Sears Canada pursuant to its take-over bid for Sears Canada, first
announced in December 2005. The Company paid a total of $282 million for the additional 17.8 million common
shares acquired and has accounted for the acquisition of additional interests in Sears Canada as a purchase
business combination for accounting purposes. The total amount paid for shares acquired has been allocated to
the assets acquired and liabilities assumed based on their estimated fair values as of the respective acquisition
dates. Total consideration for the additional interest acquired exceeded the associated proportionate
pre-acquisition carrying value for Sears Canada by approximately $188 million. The Company allocated the
excess to real property ($5 million), trademarks and other identifiable intangible assets ($55 million), goodwill
($167 million) and other assets and liabilities (-$39 million). This purchase price allocation is preliminary and
further refinements may be necessary. The acquisition of the additional interest in Sears Canada was not material
to the Company’s consolidated results of operations or financial position.
On August 8, 2006, the Ontario Securities Commission (“OSC”) issued an order in respect of Holdings’
offer for the outstanding shares of Sears Canada that required Holdings to, among other things, exclude the votes
of approximately 30% of the shares held by shareholders of Sears Canada other than Holdings at the
commencement of the offer from the calculation of the majority of the minority approval requirement for the
contemplated second step subsequent acquisition transaction (the “OSC Order”). Holdings appealed that decision
to the Ontario Superior Court (Divisional Court), and on September 19, 2006, the Divisional Court dismissed the
appeal. On November 14, 2006, the Court of Appeal for Ontario denied Holdings’ motion for leave to appeal
from the decision of the Divisional Court, which resulted in the exhaustion of Holdings’ appeal rights. At a
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